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New Tunisian leader faces economic challenges

By BOUAZZA BEN BOUAZZA and PAUL SCHEMM Associated Press

Updated:
01/10/2014 11:33:27 AM EST

TUNIS, Tunisia—Tunisia swore in a new caretaker prime minister Friday and he faces a multitude of challenges: organizing the country's first election for a permanent post-revolutionary government, fixing a deteriorating economic situation and placating an unhappy populace.

Prime Minister Mehdi Jomaa, who had been the industry minister in the Islamist-led government that resigned, promised to form an independent cabinet of technocrats as soon as possible in the North African nation.

"I will do everything in my power to confront the challenges, overcome the obstacles and restore stability and security to Tunisia," he told reporters after the swearing-in.

As recently as Wednesday, cities across Tunisia were convulsed in rioting, with police stations and government buildings facing attacks over new taxes on farm and transport vehicles.

The taxes, which the finance minister had described as necessary to fill yawning holes in the country's budget, were hastily suspended by the outgoing prime minister, casting doubt on future government efforts to rein in spending and raise revenues.

"The protests we have seen recently show very well the problems that the current government will face and what kind of obstacles will prevent the implementation of meaningful reform," said Riccardo Fabiani, North Africa analyst of the Eurasia group.

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A popular uprising calling for greater freedoms and more jobs overthrew Tunisian dictator Zine El Abidine Ben Ali three years ago, sparking similar movements across the Arab region.

In Tunisia's restive aftermath, however, tourists fled, factories were shuttered by strikes, investment evaporated and inflation soared, worsening most residents' daily lives. International ratings agencies downgraded the country's credit rating to junk status, making borrowing on the international markets more difficult.

After the economy shrank 2 percent in 2011, growth returned at 2.7 percent in 2013, but that is far below the level needed to create jobs. Unemployment hovers at 17 percent, rising to 24 percent for impoverished cities like Kasserine.

Tunisia's transitional governments, including one run by Islamists that just stepped down, failed to stimulate the economy. The International Monetary Fund and other international bodies, meanwhile, are calling for spending cuts on subsidies and salaries that would be deeply unpopular.

"The problem is the reforms Tunisia needs right now are bound to be completely unpopular," said Fabiani. "What we expect is that the level of instability will continue for the forseeable future."

Tunisia's budget deficit is already a prohibitive 8 percent of GDP. Its trade deficit is also 8 percent because of drops in tourism and phosphate production as well as the economic crisis in Tunisia's largest trading partner, Europe. The Tunisian dinar has also fallen sharply against the dollar and the euro.

Jomaa's new cabinet of technocrats and the assembly's imminent vote on the constitution may restore some investor confidence—if not necessarily that of the people. It will also likely unlock a much-needed $1.74 billion IMF loan. The deal was agreed upon last year but only $150 million has been paid out so far.

"I expect that as of today, with a new neutral government and a calmer situation more favorable for the democratic transition, the IMF will start by unlocking the payments," said financial expert Ezzedine Saidane, noting that $500 million in loans has been withheld since September pending reforms.

While the new government will probably not serve out the year and won't be able to enact long-term changes, Saidane said there several things it could accomplish. The first is to restore security so Tunisia's economy can grow again, a tall order between the social unrest of dissatisfied citizens and attacks by al-Qaida-linked extremists.

Then the new government must restore the country's traditional sources of income, namely tourism and the phosphate mines in the southern city of Gafsa, whose production has been slashed by repeated strikes and work slowdowns.

Tourism has shown a gradual recovery, with arrivals in 2013 at 6.26 million, up 5.3 percent from 2012 but still less than the 6.9 million in 2010 before the revolution. Revenues are also 8 percent below 2010, when tourists stayed longer and spent more.

"Solving this situation will help restore the authority of the state, relaunch economic growth refill the country's coffers and lighten the foreign debt load," said Saidane.

Longer-term reforms to cut budget deficits will have to wait for the government that is to be elected in 2014.